Sales and Trading Salary vs Investment Banking
It seems like since the beginning of time,and investment banking have been the dream jobs of countless undergrads seeking big bucks. A lot changed when the financial crisis of 2008 came along, and trading was arguably the most affected industry. There's a popular notion that trading salaries have dipped so deep it's no longer a worthy pursuit. While it's true that trading salaries will never reach the skies like they did pre-2008, trading salaries and the industry altogether remain a very worthy pursuit.
Investment banking analysts make around $120-130k all-in. A S&T analyst salary is pretty comparable, anywhere from $110-130k all-in. Second-year analysts make 10-15% more than those figures in both IB and S&T, give or take. As you climb the ranks, IB tends to make slightly more than S&T, although that's only based on averages.
Performance drives S&T, and it drives the salary in S&T, too. Top performers in S&T make far more than their peers at an equal level in IB. There are traders pulling in a million dollar bonus before they reach 30 years of age, but those traders are far rarer than they used to be. (See the S&T Myth - Shrinking Salaries section for more on that.)
The significance of performance and performance-based bonuses varies in S&T depending on the type of shop/bank. The most risky type of trading is the most dependent on performance and has the greatest variation in bonus depending on performance. The opposite is true for low risk trading. The greatest risk/reward type of trading to the most risk averse type of trading follows this order:
- Proprietary Trading: Trading with the shop's (and your own, at more extreme shops) money. Idea generation falls entirely on the shop.
- Flow Trading: A mix between and agency trading, it's trading with a client's money on ideas generated by the shop.
- Agency Trading: Executing a client's trade request with their money entirely.
Among these three branches of trading, there are many more branches that qualify the type of securities traded (fixed income, emerging markets, etc.). These three types of trading all involve an element of performance since S&T is extremely meritocratic. That's why - despite extreme uncertainty and shifts in the industry - there's still an incredible demand for S&T jobs out of undergrad.
Another critical factor to consider when comparing IB salaries is the lifestyle. In investment banking, lifestyle is pretty much nonexistent as you'll be pulling an average of 80 hours per week. This is opposed to S&T, where you'll be pulling an average of 40-60 hours (closer to 60, but it depends on what you're working on at the time). While salaries across IB and S&T are comparable, people in S&T make roughly the same and lead a far better lifestyle.
Sales and Trading Compensation Per Level
With the help of thousands of users who privately provided their compensation data, WSO has been able to develop accurate salary information for S&T. Although this information is from 2010, the figures are still accurate, give or take a little bit. We've also compiled information (thanks to 30,000+ unique users) on salary, career opportunities, satisfaction, and much more as of 2017 to create the WSO Private Equity Industry Report and the WSO Investment Banking Industry Report.
What Goes Into Sales & Trading Salary?
(Base) + (P&L - Seat Cost) * P&L% = All-in Compensation
Here is an example of how bonuses are calculated from @MeatHead":
Bank pay is around 6%. Some years less but rarely ever more than that. I think it's safer saying, if you got 6%, you would be satisfied. The pay is low, low relative to uber drivers, because of the, middle office, MDs in said /MO/Compliance that get paid 250k salaries for sitting on their asses that the trader has to make revenue for. This fixed-cost per seat usually comes out around to 2-3mm.
So take your trader (Pnl-this seat cost(2-3mm))*.06
So if I make 10mm around early December, which is when most banks effectively cut off Pnl for bonus purposes, 3mm is dinged against me, and I net 7mm in Pnl. This 7mm * 6% is 420k minus my 160k salary nets me 260k in bonus. Working at banking they will pay 70-75% in cash, and the rest will be vested over the next 4 years in a combination of bank stock and cash. If I quit before the 4 years, I get only a pro-rated share that I've already received.
This is usually how a trader's compensation is determined. Base depends on level, whereas bonus is determined by P&L, which is reasonably reflective of your performance.
If you're in debt at the end of the year, you'd likely end up with no bonus.
Struggling Industry - Is Trading Worth It?
There's no doubt that trading has changed significantly since 2008. The number of desks nowadays pales in comparison to the amount back in the day. Fewer jobs are available, but that doesn't distract from the distinct appeal of the trading environment. Your own success is up to you, both in terms of landing a job in S&T and in terms of succeeding as a trader. Here's how you can easily answer, Is trading worth it? from @setarcos.
If you can make money trading, then yes, it is. If you can't, then there's no point pursuing a career.
Tech/market structure, etc. is so different for each product that, ''Oh guys, it'll be automated," makes no sense. You gonna automate distressed credit trading, ya? Good luck.
The fact is there will always be jobs available in trading. You reap what you sow, and if you want to reap the rewards of trading, then you better be prepared to put in the work. Trading salaries remain solid, and the environment is constant. Competition is fierce, so if you have a passion for trading, start trading early on your own personal account.